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Woolworths boost Shopping Centres group property results

Shopping Centres Australasia (SCP) has upgraded its earnings after a series of acquisitions and a boost from a better performance of its main tenant, supermarket giant Woolworths.

The neighbourhood centre landlord reported a 4.9 per cent rise in funds from operations, considered the more accurate earnings measure for real estate investment trusts, to $56.1 million and expects a 1.3 per cent rise in FFO from 15.1¢ to 15.3¢ per security.

An interim distribution of 6.8¢ was paid on January 29.

The upgrade has been driven by acquisitions made in the past half year of a total $38.3 million, with the largest being Sugarworld centre in Cairns worth $24.8 million, and a lower than expected cost of debt.

But the higher cost of electricity is forecast to increase by about 30 per cent, or $1.8 million per annum for the full year to June 30. It is estimated that about two-thirds of the cost is recoverable from tenants, leaving the net impact on SCP's earnings to be about $600 million per annum.

To help alleviate the burden, the retail landlord will look to extend fixed rate contract terms, install solar panels on centre roofs where appropriate and roll out low-energy LED lighting across the malls.


The results were in line with market expectations.

JP Morgan analysts said SCP has a defensive portfolio, that is with minimal exposure to discretionary spend, but the broker will maintain its neutral recommendation as it continues to trade at around their valuation.

Real estate analysts say one of the benefits of being food-anchored is that the neighbourhood centres are considered more ''internet-proof'' than if weighted to apparel. The only cloud on the horizon is if Amazon enters the Australian fresh food sector.

SCP's chief executive Anthony Mellowes said overall supermarket sales growth continues to show an improving trend, ''primarily due to our Woolworths stores, although Coles continues to also record positive sales growth''.

For the past two years, the group's results have been impacted by the price discounting war between Coles and Woolworths. To help offset this, SCP has focused on increasing its exposure to Aldi.

As at December 31, 2017, SCP has 77 centres, with 53 per cent of gross rent generated from Woolworths, including Dan Murphy's, and 14 per cent from Wesfarmers, including Coles and Bunnings. The remainder is specialty stores and one Aldi outlet.

''Discount department store sales have stabilised, with an improved performance from our Big W stores, which in December 2017, recorded positive month-on-month sales growth,'' Mr Mellowes said.

SCP declined to comment on its stake in rival Charter Hall Retail REIT. The asset is still held as investment available for sale.

In the coming year, SCP says it will continue to make progress on its development pipeline.

''In total, we have identified 22 centres in our portfolio with development potential amounting to over $125 million of investment over the next five years,'' Mr Mellowes said.

SCP will also look to create a third unlisted fund worth up to $60 million from non-core assets to boost its funds management operations.